Ruble Strengthens as Bank Rossii Hints on Monetary Tightening

The ruble gained for the first time in six days after the central bank said it’s prepared to tighten monetary policy if inflation risks increase.

The ruble advanced 0.1 percent to 40.8958 against the central bank’s basket of dollars and euros by 6 p.m. in Moscow, a 1.2 decline in the week. The yield on Russian government bonds due February 2027 declined two basis points, or 0.02 percentage point, to 8.24 percent.

Bank Rossii may act if the weakening ruble spurs inflation, the regulator said in a statement on its website today after leaving its interest rates unchanged. The ruble’s 6 percent slide against the dollar this year may have added as much as 50 basis points to the inflation rate, central bank chairman Elvira Nabiullina said at a press-conference in Moscow today. Annual inflation was 6.1 percent as of Feb. 10, Bank Rossii said.

“Policy rates were left on hold, but the reference to tightening amid currency losses was positive relative to some concerns that the central bank would fail to address the ruble-weakening trend,” Morgan Stanley analysts led by Rashique Rahman said in an e-mailed note.

Crude oil, which along with natural gas provides about half of Russia’s budget’s revenue, fell 0.2 percent to $108.32 a barrel in London. The ruble strengthened 0.3 percent against the dollar to 35.0530 and was unchanged versus the the euro at 48.0000.

Investors should use the ruble’s temporary rebound to sell the Russian currency, Morgan Stanley analysts said. The ruble will continue to underperform as the current-account surplus narrows, the inflation rate stays high and the central bank pushes ahead with plans to make the currency a free-floating currency by 2015, they said.

Bond Payments

Russia’s gross domestic product growth slowed to 1.3 percent in 2013, the slowest pace since the 2009 recession, compared with 3.4 percent in 2012, while the current-account surplus narrowed by about 55 percent to $33.8 billion.

The government and Russian companies will pay $21.7 billion in bonds principal and $3.1 billion in interest in March, according to central bank data. That compares with $10.2 billion and $2.4 billion, respectively, in February.

“March can be a hard month for the ruble,” Igor Golubev, an analyst at OAO Promsvyazbank in Moscow, said in e-mailed comments. “On top of it all, there falls a big volume of payments on external debt.”

The ruble may get support from exporters selling hard currency-denominated revenue in order to pay local taxes next week, ZAO VTB Capital analysts Maxim Korovin and Anton Nikitin said in an e-mailed note on Feb. 12. Russian companies will pay about 920 billion rubles to the state budget, according to the median estimate of five analysts surveyed by Bloomberg.

“Tax payments are a factor only on calm days, not on volatile days like today,” Pavel Demetchik, a foreign-exchange trader at ZAO ING Eurasia Bank in Moscow, said in e-mailed comments. “The volume of speculative flow is way above the tax-related flow.”

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